No taboos, no scapegoats in market reform: Trichet

EVIAN, France (Reuters) - The world needs a thorough reform of its financial system which has been rocked to its core by a crisis caused in part by currency imbalances, European Central Bank President Jean-Claude Trichet said on Tuesday.

Trichet told an international conference in southeast France that more market transparency would be needed in future, but urged against any witch-hunts for those deemed responsible for the market turmoil.

"It is clear that we will try to manage the events that are unfolding before us and face up to them and draw all the lessons from what we are observing, from these events," Trichet said.

"It is very, very important that we do not privilege any part of the international financial system. There must be no taboos ... and no scapegoats," he told the World Policy Conference organized by the IFRI think-tank.

He said the ECB and its partners would continue to pump liquidity into the market but said their were limits to what central banks could do if banks became insolvent.

"We are now at a point ... where we will all do everything we can, and by all I mean the European Central Bank and the other big central banks, to assure liquidity in markets in very very demanding circumstances," he said.

"There are limits to what we can do because we do not have ourselves the capacity to intervene when there are problems of solvency which go beyond problems of liquidity," he said, adding that governments should assume their own responsibilities.

Asked whether the "undervaluation of the Chinese yuan" and the resulting flood of Chinese liquidity into the United States had helped cause the original subprime crisis, Trichet said:

"You know our position with regard to the Chinese exchange rate system. It is a consensus in the G7, I don't need to go over it again."

"It is clear that there is a link between the big international imbalances and what we are going through at the moment. It's absolutely obvious," he said, adding that the foreign exchange problems alone were not to blame.

"We should never try to find scapegoats, whether the scapegoats be the United States or China. We are looking at the whole system and working on improving the whole system," he said, adding: It's obviously a major point."

(Reporting by James Mackenzie and Crispian Balmer; Editing by Victoria Main)